SMIF Annual Report 2001-2002

Student Managed Investment Fund 2001 – 2002
The Mission of the Student Managed Investment Fund

To provide students of the Student Managed Investment Fund (SMIF) real-world experience in
applying the skills and concepts of security analysis and portfolio management that have been
taught in the classroom toward the management of a real-money portfolio from the foundation
account of the Department of Finance, Real Estate and Law.
Student Managed Investment Fund

Portfolio Managers
2001-2001
From Left to Right

Front Row: Alaleh Khosrowpour (Team 1), Basak Ozduzen (Team 2), Garrett Budd (Team 2),
Giao Nguyen (Team 3), Michael Vielma (Team 2), Wen-Li Chang (Team 4)
Middle Row: Mike Prewett (Team 3), Tony Clark (Team 3), Jones Widjaja (Team 4),
Jason Wang (Team 2)
Last Row: Jose Rios-Lazo (Team 1), Ryan Clark (Team 3), Ryan Van Otterloo (Team 1),
Mark Goecke (Team 1), Jason Anderson (Team 4), Dave Yessmann (Team 4)
i
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Letter of Introduction
Executive Summary
The Student Managed Investment Fund (SMIF) Program is both an honors-level course offered
at California State University, Long Beach (CSULB), and a $50,000 portfolio that the students
manage. Over the 2001-2002 academic year, the class was comprised of twelve undergraduate
and four graduate business students.
The asset classes in which the students are allowed to invest include equities, fixed income
securities, and money-market instruments. The asset allocation among these classes is
determined principally from a review of the investment climate and the relative amount of risk
the student portfolio managers are willing to assume. The investment climate for the 2001-2002
academic year was marked by large amounts of international unrest, in part due to the terrorist
events of September 11, 2001, and in part swing to the economic downturn that was already
materializing. Based on these factors, the SMIF managers chose a target asset allocation of 70%
invested in equities and the remaining 30% in fixed income securities and money-market funds.
The events of September 11 not only caused untold amounts of human suffering but also created
an economic environment that was quite problematic to forecast, an environment essentially
unparalleled in American history. The Federal Reserve’s monetary policy was characterized by
frequent, large interest rate reductions, while the international equity markets fluctuated widely.
At the beginning of the course, the student portfolio managers chose a top-down method for
analyzing their investments. Over the following weeks, participants gathered data and expert
forecasts for the United States economy, surveyed the data and information to formulate a
composite economic forecast, and then selected sectors and finally the industries within those
sectors that were expected to perform the best. For the fixed income portion of the portfolio, two
issues were selected, one issue from Florida Power and Light and the other from Household
Finance. These bonds were selected based on their durations, yields to maturity, and credit
quality. In addition, both companies represent defensive industries, which are appropriate for the
forecasted economic environment. The expected interest rate climate was deemed favorable to
each bond’s duration, and the credit quality was a moderately strong “A”, rated on the S&P
scale.
For the equity portion of the portfolio, the class chose four issues: Hot Topic, a trendy clothing
and novelty retailer, American International Group, a large insurance company, Centex, a large
home-building company, and Forest Laboratories, a large capitalization pharmaceutical
company. Based in part on their forecasted earnings and price-to-earnings multiples, these four,
companies represented potential value plays within their industries.
Over the period from August 28, 2001 to April 30, 2002, the portfolio’s equities had a total,
return of -2.75%, while the S & P 500, our equity benchmark, had a total return of -7.28%.
Over the same period, the Lehman Intermediate Credit A index lost 0.28%, while our fixed
income securities had a total return of -4.75%. The remainder of the portfolio, the cash portion,
yielded a return that was essentially consistent with the 3-month T-bill return.
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CONTENTS
The Mission of the Student Managed Investment Fund......................... i
Portfolio Managers.............................................................................................. i
Letter of Introduction............................................................................................ iii
Executive Summary .......................................................................................... iii
Student Managed Investment Fund 2001-2002 Review ..........................1
SMIF’s Investment Approach .........................................................................2
Economic Outlook..................................................................................................................... 2
Gross Domestic Product (GDP)............................................................................................... 2
Consumer Price Index (CPI) ................................................................................................... 3
Unemployment Rate ................................................................................................................. 3
Consumer Confidence Index.................................................................................................... 3
Interest Rates............................................................................................................................. 3
Sector Analysis......................................................................................................4
Technology................................................................................................................................. 4
Energy ........................................................................................................................................ 4
Utilities ....................................................................................................................................... 4
Consumer/Non-Cyclical ........................................................................................................... 5
Healthcare.................................................................................................................................. 5
Transportation .......................................................................................................................... 5
Services ...................................................................................................................................... 5
Financial .................................................................................................................................... 5
Industry Summary ..............................................................................................6
Medical Equipment & Supplies............................................................................................... 6
Biotech & Drugs........................................................................................................................ 6
Tobacco ...................................................................................................................................... 6
Water Utilities ........................................................................................................................... 7
Natural Gas Utility.................................................................................................................... 7
Consumer Finance .................................................................................................................... 7
Savings and Loans .................................................................................................................... 7
Asset Allocation ....................................................................................................8
Evaluation of Fixed Income Securities .........................................................9
Fixed Income Purchase Rationale ........................................................................................... 9
Purchased Fixed Income ........................................................................................................ 10
Household Finance.............................................................................................................. 10
Florida Power and Light .................................................................................................... 10
Fixed Income Presented ......................................................................................................... 11
General Motors ................................................................................................................... 11
Eli Lilly................................................................................................................................. 11
Amgen .................................................................................................................................. 12
Ford ...................................................................................................................................... 12
FleetBoston Financial Corporation ................................................................................... 13
Lockheed Martin Corporation .......................................................................................... 13
US Bancorp.......................................................................................................................... 14
Philip Morris Company...................................................................................................... 14
Evaluation of Equities ......................................................................................15
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Equities Purchased ................................................................................................................. 15
American International Group, Inc. – NYSE: AIG......................................................... 15
Hot Topic, Inc. – NASDAQ: HOTT .................................................................................. 16
Forest Laboratories, Inc. – NYSE: FRX........................................................................... 17
Centex Corporation – NYSE: CTX................................................................................... 18
Equities Not Purchased .......................................................................................................... 19
Sunrise Assisted Living, Inc. – NYSE: SRZ ..................................................................... 19
Pharmaceutical Product Development, Inc. – NASDAQ: PPDI .................................... 20
Covance Inc. – NYSE: CVD............................................................................................... 21
Starbucks Corporation – NASDAQ: SBUX ..................................................................... 22
Syncor International Corporation – NASDAQ: SCOR .................................................. 23
Callaway Golf Company – NYSE: ELY ........................................................................... 24
H&R Block, Inc. – NYSE: HRB ........................................................................................ 25
The Benchmarks ................................................................................................27
The Standard and Poor’s 500 Index ..................................................................................... 27
Lehman Intermediate Credit Index A .................................................................................. 27
Three-month Treasury Bill .................................................................................................... 27
Portfolio Performance ......................................................................................28
Weighted Portfolio Returns ................................................................................................... 29
Equity Securities ..................................................................................................................... 30
Fixed Income Securities.......................................................................................................... 31
Learning Experience.........................................................................................32
Real Dollar Portfolio............................................................................................................... 32
Networking .............................................................................................................................. 32
Applying classroom learned techniques and theory to real world..................................... 33
Presentation............................................................................................................................. 33
Presentation Guidelines ...................................................................................34
Technical Analysis Tools .................................................................................35
Acknowledgements ............................................................................................38
Appendix A ..........................................................................................................40
Investment Fund Objectives .................................................................................40
Appendix B ..........................................................................................................43
Appendix C ..........................................................................................................44
Appendix D ..........................................................................................................46
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Student Managed Investment Fund 2001-2002 Review
The Student Managed Investment Fund (SMIF) began the 2001-2002 academic year with the
daunting and demanding task of constructing a portfolio from a blank slate. The class began its
mission of adding value to the educational experience by participating in an environment that
encouraged the student portfolio managers to plot their own course and to challenge their
assumptions.
There were 16 students in the class, including twelve undergraduates and four graduate students.
The SMIF managers were organized into four teams and assigned responsibilities across the
groups. The class began the term by developing a syllabus for the semester and deciding upon a
direct top-down analysis as the most effective approach in guiding the security selection process.
As the class proceeded with the task of assembling economic forecasts for the coming year,
America was hit with a large-scale terrorist attack.
September 11, 2001, affected the entire nation, including the capital markets. Wall Street shut
down for the duration of four business days and SMIF was left to try to determine the impact that
these events would have on the economy. The U.S. was already on the brink of a recession and
this seemed to exacerbate the possibility of an economic downturn. Recovery forecasts were
pushed back and the only thing certain was uncertainty. As analysts were left shaking their
heads, the class set out to construct a new economic outlook for the applicable investment
horizon.
The federal government budgeted a $65 billion dollar bailout package to bolster the economy. In
response to public fear and banking liquidity needs, the Federal Reserve Board lowered interest
rates and raised liquidity for banks. Ultimately, in December 2001, the federal funds rate was
lowered to 1.75%, its lowest level for the past 40 years.
The volatility of the market proved to be a greater challenge than expected. Notably, the market,
as measured by the S&P 500, experienced an 18% increase from its nadir on September 21 to its
subsequent peak on November 30. The class continued extensive analysis of those sectors and
industries that appeared to be favorable for the investment horizon. The goal was to isolate a few
industries and utilize research to select securities within these favorable industries.
Capital preservation coupled with reasonable growth was the top priority for SMIF, driving a
conservative investment style for developing the portfolio. In accordance with this, SMIF
decided upon an asset allocation of 70% in equities and 30% in bonds and money-market funds.
Of this 30%, the SMIF managers allocated 10% to be held as cash in the money-market fund.
The SMIF managers’ stock selections included equities that appeared to be undervalued
according to the class’s chosen valuation models. All issues required a two-thirds class vote for
inclusion in the portfolio. Four equities were voted into the portfolio: Hot Topic, Forest
Laboratories, Centex, and AIG.
1
SMIF’s Investment Approach
The SMIF portfolio begins each academic year with a cash balance of $50,000. The previous
year’s investments have been liquidated and new economic forecasts must be developed before
any new investments can be purchased. This process provides the CSULB students with a
unique experience, since the equivalent programs of most other universities keep their portfolios
invested year-round. The challenge for SMIF’s incoming portfolio managers is to develop an
initial investment strategy using a top down approach. The following are the steps involved in
SMIF’s top-down approach:
1. Perform economic outlook

2. Make sector/industry analysis and asset allocation
3. Select bond issues
4. Select equity issues
5. Monitor economic indicators and adjust portfolio
Economic Outlook
Before selecting individual investments, SMIF developed economic projections to gain a better
understanding of the U.S. and global economies. Although there are numerous economic
indicators, SMIF concentrated on five widely known measures. All the indicators are
interrelated and help supply a broad measure of overall economic direction. The five primary
economic indicators monitored by SMIF were:
• Gross Domestic Product

• Consumer Price Index
• Unemployment Rate
• Consumer Confidence Index
• Interest Rates
SMIF focused on these indicators because most are “leading” or “coincident” indicators. The
class developed a forecast to determine the economy’s current and future position in the business
cycle in order to identify attractive sectors and industries.
Gross Domestic Product (GDP)

GDP measures aggregate economic activity across all sectors of the U.S. economy. It is reported
quarterly as an annualized percentage change. GDP growth is widely followed as the primary
indicator of economic activity. SMIF’s GDP forecasts for Q3 2001 through Q2 2002 were:
-0.2%, 1.4%, 2.3% and 2.7%, respectively. The increasing trend in projected GDP growth
suggested the stock market could behave commensurately with the fund’s investment objective.
2
Consumer Price Index (CPI)
CPI measures the cost of a fixed basket of goods relative to the cost of the same basket of goods
in a base prior year. The changes in this basket of goods approximate changes in the overall
level of prices paid by consumers. In this regard, CPI is a good measure of inflation, which is a
sustained increase in the overall level of prices. Inflation continued to remain relatively tame in
the U.S. economy, allowing for continued monetary easing by the Federal Reserve Board.
SMIF’s CPI forecasts for Q3 2001 through Q2 2002 were 1.2%, 0.8%, 2.7%, and 2.8%,
respectively.
Unemployment Rate
The unemployment rate is the percentage of the labor force that is out of work and actively
looking for work. As with inflation, the unemployment rate is a primary indicator of the current
business cycle. Until the fall semester of 2001, the unemployment rate had remained relatively
low in the U.S. for several years. With the economic slowdown experienced during the 2001–
2002 academic year, SMIF projections for the unemployment rate for Q3 2001 through Q2 2002
were: 4.8%, 5.1%, 5.2% and 5.4%, respectively.
Consumer Confidence Index

The Consumer Confidence Index is a monthly survey of 5,000 households designed to measure
Americans' optimism about their current economic situation and their future spending patterns.
The index was already on the decline prior to September 2001 but fell even further to reflect a
large decrease in consumer confidence as the events of 9/11 magnified fears of recession. The
index began to recover during December 2001 and steadily improved over the 100-baseline
figure during the first two quarters of 2002. The index currently suggests that consumers have
once again become relatively confident about the future economy. This is important because
consumption accounts for two-thirds of all economic activity in the U.S.
Interest Rates
SMIF managers were in a unique monetary policy environment during the 2001-2002 academic
year. The class witnessed aggressive rate reductions by the Federal Reserve Board (FRB) to
stimulate the slowing economy. Over the course of 2001, the FRB cut short-term rates by 425
basis points, from 6% to 1.75%. The fed funds rate is one of the tools used by the FRB to curb
inflation and stabilize the dollar. Interest rates are closely tied to the Consumer Price Index and
Unemployment Rate. Since the role of the FRB is to keep inflation tame through monetary
policy, both actual and anticipated changes in short-term interest rates played an important role
in the fund’s investment choices. SMIF projected that the fed funds rate for Q3 2001 through Q2
2002 would range between 2% and 2.25%.
3
Sector Analysis
Sector Analysis included an in-depth look at the broad sectors. The SMIF managers used the
sector and industry classifications as shown on www.marketguide.com. The goal of this top-
down approach was to eliminate unfavorable sectors for the near term and key in on those
specific sectors with favorable outlooks. The portfolio managers continued looking for favorable
sectors throughout the year. Based on the most favorable sectors chosen, the portfolio managers
further narrowed their investment selections down to specific industries. The following is a brief
synopsis of SMIF’s initial review of sectors. Throughout the year, the SMIF portfolio managers
continued to monitor each sector and industry, looking specifically for value-added sectors.
Technology
This sector includes industries such as computer services, computer networks, semi-conductors,
and communications equipment. The technology sector had experienced a major downturn and
had an unfavorable outlook. The sector seemed over-priced and earnings forecasts in this sector
were rapidly decreasing. SMIF was concerned with the recent crash in technology stock prices
and felt that the remaining risks outweighed the potential benefits within this sector.
Energy
The Energy sector consists of oil, natural gas and equipment used for refining. During the
current year, international unrest has contributed toward making this sector a highly volatile one.
For example, the Organization of Petroleum Exporting Countries (OPEC) reported that it
anticipated cutting production, which would lead to increasing oil prices, while the volatility in
the Middle East added to an uncertain situation in oil prices. The SMIF managers decided that,
given the uncertainty in the world economy, particularly as a result of the September 11 attacks,
the Energy sector was not a good source for potential investments.
Utilities
The Utilities sector includes water, natural gas, and electric utilities. SMIF’s managers decided
to closely examine this sector, with an emphasis on the water-utility industry, as this component
appeared to offer the most promise. The companies within this industry have been updating their
plants in order to lower costs and improve efficiency. The portfolio managers were especially
interested in fixed income issues from companies within this sector.
4
Consumer/Non-Cyclical
The Consumer/Non-Cyclical sector includes companies facing demand schedules that are
relatively inelastic. This sector is considered defensive and appeared likely to perform well in
the current economic environment. The consensus of the class was that the future outlook for
this sector was favorable due to the current uncertainty of the world and thus that the companies
within this sector merited closer examination. The portfolio managers decided to focus their
research within this sector on the beverages, food processing, tobacco and household products
industries.
Healthcare
Healthcare is comprised of biotechnology & drugs, major drugs, medical equipment & supplies
and healthcare facilities. After extensive research, SMIF decided there was value to be gained in
this sector, especially in the biotechnology and drugs industry. This decision was based upon
growth and earnings projections for the sector and the demographic figures of the aging
population. Another key input to the decision was the attacks of September 11 and the
subsequent demand for drugs and vaccines to protect the public from future bio-terrorist attacks.
Transportation
Included in the Transportation sector are air courier services, water transportation, miscellaneous
transportation, airlines, railroads, and trucking. Based upon poor projected earnings growth, the
class believed this sector to be overvalued. The sector projected a loss in earnings for upcoming
quarters due to increased costs following the September 11 attacks. As a consequence of this
evaluation, SMIF decided the sector was not favorable.
Services
The Services sector included a wide range of industries. Of these, SMIF felt the discount
retailers and security sectors had the most favorable prospects. The SMIF managers also decided
to avoid hotel and restaurant industries due to anticipated declining growth in the near future.
Retail and discount stores, on the other hand, were expected to do well because of the upcoming
holiday season.
Financial
The Financial sector is an amalgamation of insurance companies, credit businesses, asset
managers, and other consumer-related finance operations. This sector included some favorable
industries and SMIF viewed several as potentially undervalued. Valued-added potential was
relatively high within the sector mainly due to the events of September 11. Many of the
insurance companies within the sector were raising premiums due to the increase in claims after
September 11.
5
Industry Summary
Industry analysis focuses on finding those industries most likely to outperform the market over
the near term. The chosen industries selected were from the most favorable sectors. Industry
definitions, like those of sectors, were from www.marketguide.com. Periodically, the portfolio
managers looked at “hot sectors” from Marketguide. Hot sectors were defined as near-term
market sectors that had prospects for outperforming other sectors. Hot industries were a sub-set
of industries that were from within the hot sectors. The selected favorable industries are listed
below.
Medical Equipment & Supplies

This industry features commodity items such as intravenous supplies, lab products, and surgical
supplies. It is viewed as being a defensive industry and should perform well under weak
economic conditions. The cardiology market seems especially favorable due to the high
incidence of coronary disease in the United States.
Biotech & Drugs

Biotechnology and drugs uses developmental science to bring about change by using new
genetic based therapies to treat disease and affliction. The current focus of the industry is in
developing human therapeutics to treat cancer. The four major classes include epidermal growth
factor receptor (EGFR) inhibitors, anti-angiogenesis compounds, antibody payloads, and cancer
vaccines. Profitable companies should benefit from the new drug pipeline, which should
contribute to growing earnings over the next few years.
Tobacco
The forecasted earnings stream was favorable and likely to provide equity price appreciation, as
well as having high dividend payouts. Tobacco debt securities had attractive yields and
moderately strong credit ratings; however, risks for the companies remained problematic. A
recent ruling from a California jury awarded a litigant billions of dollars in damages due to use
of tobacco products. Upon appeal, damages were reduced to $100 million, but the potential
extent of future damages remains troubling. Ultimately, the teams decided not to include
tobacco companies due to the ethical concerns relating to owning shares of a company selling
harmful products. This decision was consistent with SMIF guidelines.
6
Water Utilities
Local governments regulate the water utility industry. These local governments plan to provide
potential investment in infrastructure build-up and improvement over the next 10 years. The
companies that stand to benefit from this capital spending could represent favorable investments.
Additionally, the regulated nature of the industry may represent sound debt investment.
Furthermore, utilities are often more resistant to economic downturn.
Natural Gas Utility

This industry is characterized by two types of utility systems: municipal gas systems, owned by
local governments, and investor-owned utilities. Municipal gas systems account for a small
percentage of natural gas distribution to customers and a smaller percentage of total industry
revenue. Consolidation is a key trend to follow in this industry, as consolidation with electric
utilities could lead to a favorable investment.
Consumer Finance
This industry is a diversified amalgamation of lending and consumer credit companies. As of

Fall 2001, the rapid reduction in interest rates by the Federal Reserve promised potential
favorable spreads for these lending institutions, particularly when considered in the context of
interest paid on demand deposits. Furthermore, SMIF’s economic forecasts showed the
economy emerging from recession near the close of the first quarter of 2002. Recessionary
pressures historically have been particularly troublesome for consumer credit-related companies
as strained balance sheets often strain investors’ expectations. However, the estimated
shallowness of the recession suggested that these concerns were potentially exaggerated.
Consumer finance companies provided unique potential gain.
Savings and Loans

Savings banks also represent a favorable industry in an environment of declining interest rates.
Here interest rate spreads between consumer loans and consumer deposits represent direct profit
potential. Additionally, the housing refinance market had been robust while interest rates fell.
However, when interest rate reductions slow or reverse, these positive forces then turn to threats.
Consequently, through the middle portion of 2002, based on SMIF’s interest rate forecasts, the
industry only provided near-term attractiveness.
7
Asset Allocation
Asset allocation is an important step in portfolio construction. The purpose of asset allocation is
to diversify the portfolio’s assets among various investments to minimize risk and maximize
returns. SMIF set out to optimize the portfolio’s risk/return profile by diversifying the portfolio
between stocks and bonds. Given the market conditions, a 70/30 stock/bond ratio was utilized
throughout the investment period.
The first factor that contributed to SMIF’s allocation decision was based on class projections
concerning interest rates and anticipated future monetary policy action. With a potential interest
rate increase by the second half of 2002, SMIF elected to place less weight of the portfolio in
bonds to avoid price depreciation. A larger percentage of the portfolio was dedicated to equities
because of an anticipated economic recovery during 2002.
In addition to economic projections, SMIF utilized professional recommendations regarding

asset allocation. Large institutional equity portfolios typically use a mix of 70% stocks and 30%
bonds during economic conditions similar to those facing SMIF.
Optimal asset allocation of 70/30 was not reached due to time constraints and stop loss
executions. The chart below summarizes the portfolio’s actual asset allocation.
Actual Asset Allocation
Fixed Income
20%
Equities
30%
Money Market
50%
8
Evaluation of Fixed Income Securities
Fixed Income Purchase Rationale
SMIF teams were faced with numerous challenges this year due to September 11, 2001. These
events sent the equity markets into a downward spiral, and conversely the bond markets
skyrocketed. The September 11 events chased many investors into the bond market before the
SMIF teams had the opportunity to finish their top-down analysis. Upon finishing the analysis,
the SMIF teams felt a need for caution in relation to the duration of the bonds selected. It was
decided that 5 to 8 years on the yield curve was most attractive.
The SMIF class invited Mr. Doug Lopez, a fixed income specialist with Bradford & Marzec, Inc.
to discuss the current trends in the market and offer his professional opinions of fixed-income
investing. The previously developed economic forecast seemed to be in line with those of Mr.
Lopez, and the SMIF class was prepared to make bond selections. After the economic forecast
was developed, the class then looked at which sectors could outperform the market in the
investment time frame and searched for value added opportunities.
SMIF guidelines require that bonds be of investment grade or higher (BBB) and constitute 25%
to 50% of the total portfolio. SMIF decided that with the possibility of rising interest rates in
middle to late 2002, a modicum of fixed income issues should be included. 30% of the SMIF
portfolio was allocated to fixed income securities. Due to conditions surrounding the amount to
be invested in any particular bond (no more than 10% of the portfolio value to any single issue),
the bonds presented and preferred by SMIF were not readily available in the amounts desired.
The SMIF class was forced to choose from bonds available in the inventory of Salomon Smith
Barney that matched the duration and yield previously selected.
Two bonds were selected for the SMIF portfolio: Household Finance, and Florida Power and
Light. After careful review of the time remaining in the investment horizon, and the costs
associated with the purchase of bonds, the SMIF class petitioned the Board to allow the
remaining portion of the 30% allocated to bonds to remain in cash. The petition was approved
and the remaining bond allocation remained in the money market.
9
Purchased Fixed Income
Household Finance
Household Finance, a subsidiary of Household International, is a consumer lender with more
than $120 billion in managed assets. Primary operations include real estate secured loans, auto
finance loans, credit cards, tax refund anticipation loans, retail installment sales finance loans
and other types of unsecured loans. Household's operations are divided into three reportable
segments: Consumer, Credit Card Services and International.
In the fourth quarter of 2001, there were rumors about Household’s accounting practices. This
was in part a consequence of the Enron case and the fact that Andersen was, at the time,
Household’s accounting firm. The company later fired Andersen and denied the exaggerated
effect of the rumors. Equity analysts showed strong confidence in Household’s credibility and in
fact boosted their recommendations from Buy to Strong Buy for the month of December. In
addition, the credit outlook for the company remained strong.
Household Finance received the two-thirds vote required and SMIF purchased the bond on
12/12/01. The decision to purchase Household was due to the potential benefit from the lower
interest rates and strong credibility.
• Duration 5.35 • Yield to Maturity 6.23%

• Maturity Date 7/15/08 • Rating A2/ A
• Coupon 6.35%
Florida Power and Light

Florida Power & Light Group, Inc. (FPL) is a public utility holding company. FPL Group's
principal subsidiary, Florida Power & Light Company, is engaged in the generation,
transmission, distribution and sale of electric energy to 3.8 million customers throughout most of
the east and lower west coasts of Florida. FPL Group Capital, Inc., a wholly owned subsidiary of
FPL Group, holds the capital stock and provides funding for the operating subsidiaries other than
FPL.
For the fiscal year ended 12/31/01, revenues for the company rose 20% to $8.48 billion. Net
income rose 11% to $781 million. Results reflect the passing along of higher fuel costs, partially
offset by higher operations and maintenance costs.
FPL Group also received a two-thirds vote and SMIF purchased it on 1/28/02 for the SMIF
portfolio largely because of its availability. FPL Group also appealed to the class because of its
solid financial statements and its revenue growth.

• Coupon 7.735%
10
Fixed Income Presented
General Motors
General Motors (GM) has steered around competitors to remain the world's #1 maker of cars and
trucks, with brands such as Buick, Cadillac, Chevrolet, GMC, Pontiac, Saab, Saturn, and
Oldsmobile. GM also produces cars through its Holden, Opel, and Vauxhall units. Non-
automotive operations include Hughes Electronics, Allison Transmission, and GM Locomotive.
GM has a 49% stake in Isuzu Motors and 20% stakes in Fuji Heavy Industries (Subaru), Suzuki
Motor, and Fiat Auto. It has agreed to take a 67% stake in South Korea's Daewoo Motor.
Subsidiary GMAC provides financing.
The class voted 16-0 for the bond because of the current price, the duration, and the outlook for
GM in the near-term. Due to limited quantities in the Salmon Smith Barney inventory, the bond
was not purchased.

• Maturity Date 1/22/08 • Rating A2/A+
• Coupon 6.125%
Eli Lilly
After completion of the top down analysis, the healthcare sector was selected as having a high
probability of outperforming the S&P 500. Eli Lilly is in the business of developing best-in-
class pharmaceutical products by applying the latest research from their worldwide laboratories
and from collaborations with eminent scientific organizations.
At the time Lilly was presented, the company had projects in the pipeline that we believed would
cause the price of the bond to appreciate in value. They had obtained conditional approval for a
drug called Sepis and a 90% chance of getting Xigris approved. As the leader in anti-
depressants, Lilly saw the outlook for sales of anti-depressants increasing, thus having the
potential to boost profits. Another project of Lilly capable of providing overall value to the
company was ISIS 3521. The drug maintained favorable prolonged survival and strong overall
response rates in people with non-small cell lung cancer.
The issue was not voted on by SMIF due to the unavailability of inventory to purchase the bond
through Salomon Smith Barney.

• Maturity Date 6/01/16 • Rating AA/Aa
• Coupon 6.570%
11
Amgen
Amgen, Inc. is a global biotechnology company that researches, develops, manufactures and
markets human therapeutics based on advances in cellular and molecular biology. Amgen
generated revenues of $3.6 billion in 2000. Primary products include drugs for anemia and for
use in oncology. SMIF saw potential in its drug pipeline and the new products it was going to
roll out through 2005. Amgen also boasts strong positive earnings potential in the short and long
term. The one value driver that SMIF saw in Amgen was its KGF drug, which was in phase III,
for types of lymphoma. The fact that KGF was in its final phases and likely to pass suggested
price appreciation of the bond.
The issue was not voted on by SMIF because of the unavailability of inventory to purchase the
bond through Salomon Smith Barney.

• Maturity Date 12/01/07 • Rating A/A2
• Coupon 6.500%
Ford
Ford Motor Company manufactures, assembles, and sells cars, trucks, and related parts and
accessories. Ford Financial Services provides financing, insurance, vehicle, and equipment
leasing. SMIF believed that the combination of a high rating and high yield to maturity and the
relatively low price of the bond, $99.28, would create value. SMIF was not convinced of any
near term upgrades in this issue, seeing that Ford was heavily hit by the attacks of September 11.
The company itself was also undergoing many changes, including a restructuring plan that was
announced in mid January. The automotive industry was also predicting a decline in industry
demand through 2003.
The issue did not receive the two-thirds vote. There was high uncertainty surrounding the
outcome of the restructuring, the layoffs the company had announced, and the overall trend in
the automotive industry.

• Maturity Date 1/25/07 • Rating A/A2
• Coupon 6.500%
12
FleetBoston Financial Corporation
FleetBoston Financial (Fleet) is the seventh-largest financial holding company in the United
States, with assets exceeding $200 billion. A diversified financial services company, Fleet offers
a comprehensive array of innovative financial solutions to 20 million customers in more than 20
countries and territories. The company is headquartered in Boston, Massachusetts. The
company’s key lines of business are retail banking, corporate banking, and investment services.
The bond was not recommended for purchase due to the increased debt load. On November 14,
2001, FleetBoston Financial issued $1 Billion in Global notes, which could have led to a
potential downgrade. Another reason that SMIF turned down the issue was that the company was
under investigation by the SEC for possible securities kickbacks to its corporate/consumer
purchases relating to IPO’s.

• Maturity Date 3/15/2008 • Rating A2
• Coupon 6.375%
Lockheed Martin Corporation

Lockheed Martin Corporation is the world’s largest military weapons manufacturer. The
company’s major products include missile systems, aeronautics and information systems,
electronics, and military aircraft. Some examples of its military aircraft product line include the
F-16, F-22 and C-130J. Lockheed Martin contracts with the U.S. military as well as foreign
governments. The company was considered for purchase due to an anticipated increase in
military spending by the U.S. government. In addition, the new Joint Strike Fighter program can
potentially grow to a $220 billion revenue source over the next 27 years.
The company’s debt issues were within SMIF’s bond criteria. Although the company’s bonds
were available on the secondary market, the class was unable to consider Lockheed Martin due
to having limited access to bonds outside of the Salmon Smith Barney inventory.

• Maturity Date 5/15/06 • Rating BBB
• Coupon 7.25%
13
US Bancorp
U.S. Bancorp is the eighth largest financial services holding company in the United States, with
assets in excess of $160 billion. With 2,239 banking offices and approximately 5,200 branded
ATMs, the company provides a comprehensive line of banking, brokerage, insurance,
investment, mortgage, trust and payments services products to consumers, businesses and
institutions. The company's operating segments are wholesale banking, consumer banking,
payment systems, and wealth management and capital markets. U.S. Bancorp is the parent
company of Firstar Banks and U.S. Bank. The company formed in February 2001 following the
merger between Firstar Corporation and U.S. Bancorp.
SMIF considered investing in US Bancorp’s bonds because rate reductions looked favorable to
banking and financial services and provided better spreads. An upgrade may be likely due to
increased revenue growth. In the current environment US Bancorp was carrying a larger than
average amount of troubled loans.
The issue did not receive a two-third vote because of deteriorating loan portfolio. It was also
trading at a relatively high price with a low coupon.
• Duration 4.47 • Yield To Maturity 5.41%

• Coupon 6.50%
Philip Morris Company

Philip Morris Companies Inc. is a holding company whose principal wholly owned subsidiaries,
Philip Morris Incorporated, Philip Morris International Inc., Kraft Foods Inc. and Miller Brewing
Company, are engaged in the manufacture and sale of various consumer products. A wholly
owned subsidiary of the company, Philip Morris Capital Corporation, engages in various leasing
and investment activities. The company's significant industry segments are domestic tobacco,
international tobacco, North American food, international food, beer and financial services.
The presenting team believed that the company had growth prospects in the emerging foreign
markets, most notably Europe and Asia. This helped the company accelerate in market share and
volume growth. The bond was not recommended for purchase for two reasons. First, SMIF felt
the ethical issues and social conflicts surrounding the security did not warrant investment.
Second, the duration did not meet the established criteria.

• Maturity Date 2/01/2006 • Rating A2
• Coupon 6.375%
14
Evaluation of Equities
Equities Purchased
American International Group, Inc. – NYSE: AIG
American International Group, Inc., the world’s largest insurer as measured by market value, is
engaged in a broad range of insurance and insurance related activities. The company’s business
roles are general and life insurance operations. Other major activities include financial services,
retirement savings, and asset management. AIG’s general insurance subsidiaries are multiple
line companies writing substantially all lines of property and casualty insurance. The company
operates in 130 countries; foreign premiums account for more than a third of its revenues. AIG
has acquired U.S. insurer American General.
Based on the presenting team’s valuation of AIG, rate increases subsequent to September 11, in
conjunction with write offs give AIG a positive outlook for the near term. For the fiscal year
ended 12/31/01, revenues rose 10% to $55.46 billion and net income fell 17% to $5.5 billion.
Revenue growth was due to growth in both general and life insurance segments. Net income
was offset by losses related to the World Trade Center.
AIG received the two-thirds vote and was purchased on February 20, 2002. SMIF found AIG
undervalued and expected the stock to outperform the market over the next few quarters. SMIF
liquidated the issue on April 30, 2002 at $69.90.
Selected Company Information

Sector: Financial P/E Ratio: 30.43
Industry: Insurance (Prop. & Casualty) Beta: 0.90
Market Capitalization: $178 Billion 5-Year ROE: 13.5%
Sold @ $69.60
Purchased @ $72.92
15
Hot Topic, Inc. – NASDAQ: HOTT
Hot Topic is a small-cap, mall-based retailer that specializes in apparel, accessories, gifts, and
music for teenagers. Hot Topic carries brands like Torrid and Morbid. Torrid stores focus on
apparel for teenagers that are size 14 and larger. Their private label Morbid-brand products,
(including Morbid Threads and Morbid Make-up,) account for 30% of sales. The other 70% of
sales come from licensed clothing, posters, stickers, jewelry, cosmetics, and sunglasses. There
are 346 Hot Topic stores in 48 states. Hot Topic is opening about 50 new stores each year,
including Torrid stores for plus-sized young women.
Based on the presenting team’s valuation of Hot Topic, the company appeared to be
undervalued. For the fiscal year ended 2/2/02, revenues increased 31% to $336.1 million. Net
income increased 23% to $28.6 million. Revenues reflected an increase in the number of stores
that were opened.
On March 5, 2002, Hot Topic was presented and received the required two-thirds vote. The
equity was purchased the following morning at $21.55. SMIF found Hot Topic attractive due to
the company’s zero debt position and steady increase in sales. In addition, the stock price fell
dramatically a couple of trading days before its presentation, due to increased concern over an
upcoming earnings report. HOTT was liquidated on April 30, 2002 at $22.66.
Sector: Services P/E Ratio: 29.95

Industry: Retail (Specialty) Beta: 1.5
Market Capitalization: $750.6 Million 5-Year ROE: 13.2%
Purchased @ $21.55
Sold @ $22.66
16
Forest Laboratories, Inc. – NYSE: FRX
Forest Laboratories, Inc. develops, manufactures and sells both branded and generic forms of
ethical drug products, as well as non-prescription pharmaceutical products sold over-the-counter.
Their primary products include Celexa, for the treatment of depression; the respiratory products
Aerobid and Aerochamber; and Tiazac, for the treatment of hypertension and angina.
FRX appeared to be an attractive investment due to their dominant position with their flagship
drug Celexa and their full pipeline of experimental drugs. With 13 years of patent protection
remaining, Celexa accounts for 56% of Forest Lab’s revenues (as of 3/19/02) and sales were
expected to increase further in future quarters. Coupled with strong growth in Celexa was the
anticipation of mid-year FDA approval of the Lexapro, the improved successor to Celexa.
FRX was purchased on March 13, 2002. After the purchase, new concerns over earnings
performance and cost associated with the new drug launch drove the price of Forest Lab’s below
our 10% stop-loss. This forced SMIF to close its position on Tuesday, April 23, 2002. On
Wednesday, April 24, 2002, all fears were calmed as Forest Labs reported earnings at 52 cents
per share in the three months ended March 31, which was 4 cents above the average analyst’s
earnings estimates of 48 cents.
Sector: Healthcare P/E Ratio: 44.05

Industry: Biotechnology & Drugs Beta: 0.62
Market Capitalization: $13.2 Billion 5-Year ROE: 16.44%
Purchased @ $84.05
Sold @ $74.35
17
Centex Corporation – NYSE: CTX
Centex Corporation is one of the nation’s largest home builders, operating in six principal
business segments: homebuilding, investment real-estate, financial services, construction
products, contracting and construction services, and home services. For the nine months ended
12/31/01, revenues rose 17% to $5.49 billion. Net income rose 51% to $264.8 million.
Revenues reflect increased conventional home sale closings and higher average sales prices. Net
income also reflects improved margins, lower raw material costs, and process improvements.
CTX was presented on March 12, 2002, at $61.32. Its P/E was 9.95, which was lower than that
of its closest competitor. The sales growth over the last five years was 16.68%. Favorable
lending rates led to greater refinancing activity, stronger housing market, and higher-than-
expected margins on conventional homes.
SMIF found CTX attractive due to the anticipation of the rising mortgage rates in the next three
to four months. The anticipated rate increase could bolster near term demand. On March 13,
2002, SMIF bought 80 shares of CTX at $61.46, a total investment of $4,976.80. Due to an
eroding housing market, SMIF was forced to sell the issue at $54.60 the 10% stop-loss point.
Sector: Capital Goods P/E Ratio: 9.95

Industry: Construction Services Beta: 1.10
Purchased @ $61.46
Sold @ $54.60
18
Equities Not Purchased
Sunrise Assisted Living, Inc. – NYSE: SRZ
Sunrise Assisted Living, Inc. provides alternatives to nursing homes targeted mainly to higher-
income senior citizens. The company operates over 150 facilities in some 25 states across the
US and one in the UK. Sunrise's facilities, each designed to resemble a Victorian manor and
usually located in a major metropolitan area, feature single and double-occupancy suites and
offer assistance with such daily activities as bathing, eating, and dressing.
Based on the team’s valuation of SRZ, the company appeared to be undervalued in the current
market environment. For the nine months ended 9/01, revenues rose 27% to $315.9M. Net
income before extraordinary items totaled $37.4M, up from $15.5M over the previous nine
months. Revenues reflected an increase in the number of communities operated. Net income
also reflected lower operating expenses as a percentage of revenues.
SRZ traded at a lower multiple of trailing earnings and sales than the average healthcare facilities
industry, even though the company had a 5-year revenue growth that was faster than the industry
average. However, SMIF felt that the financial strength of the company was a big concern. SRZ
was more leveraged than average for the Healthcare Facilities industry and return on assets was
lower than the industry average. These two factors weigh heavily on the stock and hurt the
current outlook for the equity.

Industry: Healthcare Facilities Beta: 0.60
Market Capitalization: $596 Million 5-Year ROE: 4.9%
Presented @ $29.82
19
Pharmaceutical Product Development, Inc. – NASDAQ: PPDI
Pharmaceutical Product Development, Inc. is a contract research organization that provides

research and development and consulting services in life and discovery sciences. The company
helps clients reduce their development time frame so products can get to the market sooner.
PPDI Discovery is the segment of the company that outsources research and development. The
company’s Life Sciences Group is involved in worldwide clinical research, bio-statistical
analysis, analytical laboratory studies, and development of pharmaceutical products and medical
devices.
Based on the presenting team’s valuation of Pharmaceutical Product Development, Inc., the
company appeared to be undervalued. For the fiscal year end 12/31/01 revenues rose 25% to
$431.5 million. Net income rose 52% to $49.2 million. Revenues reflected an increase in the
size and number of contracts in the contract research organization. Earnings also benefited, and
cost control strategies helped to increase margins.
The presenting team perceived PPDI to be undervalued and recommended purchasing the stock.
Ultimately, however, SMIF decided not to purchase PPDI. Due to concerns that 2002 would be
a slow year for pharmaceutical companies, together with the fact that technical indicators were
not indicating an attractive entry point, the issue did not receive the required two-thirds vote for
placement in the portfolio.

Industry: Biotechnology & Drug Beta: 0.30
Presented @ $32.91
20
Covance Inc. – NYSE: CVD
Covance Inc. is a contract research organization providing a wide range of product development
services on a worldwide basis, primarily to the pharmaceutical, biotechnology and medical
device industries. The company also offers laboratory-testing services to the chemical,
agrochemical and food industries. Covance’s services constitute two segments: early
development services, which includes Preclinical and Phase I clinical service capabilities, and
late-stage development services, which includes central laboratory, clinical development,
commercialization and other clinical support services.
For the fiscal year ended 12/31/01, revenues decreased 1% to $855.9 million, while net income
totaled $47.9 million, up from $15.2 million. Revenues reflected the divestiture of the company's
bio-manufacturing and packaging operations during 2001. Conversely, net income reflected a
$30.8 million net gain from the sale of businesses.
CVD was found to be attractive due to the timeliness rating from S&P’s rating system, the
relative strength of the company’s fundamentals compared to the industry, and the industry’s
potential in the current market. However, with the recent volatility associated with Covance,
SMIF decided not to invest in this issue due to uncertainty in the upcoming earnings stream.

Presented @ $17.82
21
Starbucks Corporation – NASDAQ: SBUX
Starbucks is a specialty coffee retailer that purchases, roasts and sells high quality whole bean
coffees, rich-brewed coffees, Italian-style espresso beverages, cold blended beverages and a
variety of pastries. The presenting team chose this company due to growing margins and
projected growth. This company has little direct competition. Although trading at a relatively
high P/E, the presenting team felt its P/E is justified because of the company’s high growth
prospects.
While Starbucks operates over 4,000 locations, the company is still planning to open over 6,000
more locations in the next few years. Their growth prospects in revenues are projected to be
23% over the next 5 years. Looking at growth rates is only part of the challenge; two valuation
techniques were used in trying to derive potential value. The first technique utilized was a three-
stage growth model using the firm’s free cash flow to equity (FCFE). Another technique used
was P/E ratio analysis. In these models, the value was found to be $30.64 and $30.50
respectively.
Despite the positive assessment of the stock value, SMIF ultimately decided not to include
SBUX in the portfolio due to concerns over its high P/E ratio and the risk/reward ratio of the
issue.
Sector: Services P/E Ratio: 42

Industry: Restaurants Beta: 1.10
Presented @ $21.53
22
Syncor International Corporation – NASDAQ: SCOR
Syncor manufactures and distributes radiopharmaceutical products to clinics and hospitals. Their
distribution network includes more than 120 US and about 20 non-US nuclear pharmacy service
centers. Syncor owns in whole or part more than 50 medical imaging centers (MRIs, X-rays,
ultrasound, etc). The company is the preferred distributor of DuPont’s Cardiolite, a cardiology-
imaging agent used to detect the presence and extent of coronary heart disease. Syncor also
makes brachytherapy implants for the treatment of prostate cancer and operates four production
facilities for positron emission tomography (PET) radiopharmaceuticals.
The firm has experienced earnings growth of 41.7% over the last 5 years and projects growth of
23.1% for the next 5 years. The management has also proven to be effective with ROE, ROI,
and ROA being well above industry averages. SMIF perceived SCOR as potentially
undervalued based on its future growth projections and historical performance, believing that
Either the market is undervaluing the company and there is an opportunity to capture price gains,
or the efficient market is fairly valuing the company based on their current business and the
sustainability of such high growth estimations.
Syncor looked very attractive on paper. The forward EPS model illustrated undervaluation along
with the technical tools indicating bullish entry points. Ultimately SMIF could not overcome
questions concerning the viability of Syncor maintaining its Cardiolite distribution agreement
with Dupont.

Presented @ $23.37
23
Callaway Golf Company – NYSE: ELY
Callaway Golf Company designs, manufactures and markets high quality, innovative golf clubs
and golf balls. ELY products include metal woods, irons, woods, and putters. For the fiscal year
ended 12/31/01, net sales fell 3% to $816.2 million. Net income, before accounting changes fell
29% to $58.4 million. Revenues reflected decreased sales of irons due to ongoing uncertainty in
the economy. Net income also reflected a $19.9 million unrealized valuation loss.
Despite its poor recent results, Callaway is a proven market leader whose innovative products,
strong credit performance, and expertise in the leisure industry could allow them to maintain a
competitive advantage over their competitors and provide solid returns. Merrill Lynch, AG
Edwards, and Bear Stearns upgraded the stock to a “buy” rating with an average price target of
$22.
Several factors led to SMIF’s rejection of ELY. The main criticisms were its DDM (Dividend
Discount Model) valuation, which many believed had already reached its potential, and doubt
about its performance during the current economic recovery. The technical indicators were
neutral. SMIF participants believed that Callaway was a strong company but did not show
enough potential to be voted into the current year portfolio. The stock eventually met its target
valuation in the ensuing month.
Sector: Consumer Cyclical P/E Ratio: 21.3

Industry: Recreational Products Beta: 1.14
Presented @ $17.53
24
H&R Block, Inc. – NYSE: HRB
H&R Block is the largest tax preparation company in the U.S. The company is the industry
leader in terms of market share; five times more than nearest competitor. The company has
steadily grown due to new revenue sources, increased demand for professional tax preparation
and an aggressive advertising campaign. H&R Block continues to concentrate on expanding its
product line. In addition to tax preparation, the company offers investment and mortgage
services. These additional products provide excellent cross-selling opportunities to increase the
average sale per customer.
Valuation of HRB was conducted using both the P/E approach and the discounted FCFE model.
At the time of the presentation, HRB was trading at a multiple of 29, close to its high of 30.80.
The stock had performed well during the past 12 months, increasing 100% during the period.
Much of the upside potential may have already been realized.
H&R’s current 12-month rally had been based on actual earnings. Although the company
anticipated continued earnings growth, the risk/reward tradeoff was not acceptable. H&R Block
did not receive the necessary two-thirds vote due to the high P/E ratio and poor risk/reward
tradeoff.
Sector: Services P/E Ratio: 29

Industry: Personal Services Beta: 0.40
Presented @ $50.06
25
EBay, Inc. – NASDAQ: EBAY
Ebay is the leading online marketplace for the sale of goods and services by a diverse community
of individuals and businesses. Today, the community includes 42.4 million registered users, and
it is the most popular shopping site on the Internet. The company’s primary mission is to help
practically anyone to trade practically anything on earth.
After the price decline internet companies experienced over the last two years, the presenting
team felt that Ebay was undervalued and saw a high potential in price appreciation over the near
term investment horizon. The company had been implementing strategies in order to increase
their user base and increase profits. It was working on speeding up its transaction time, luring
more users to its site. Ebay was also expanding into travel and event ticket sales, two very
popular and high demand services. Furthermore, Morgan Stanley and Goldman Sachs had both
recently upgraded Ebay, with both firms stating that the company was undervalued. Based on the
team’s evaluation and the company’s positive outlook on profits and performance, the time for
purchase seemed appropriate.
The group presented Ebay on March 5, 2002, at a closing share price of $58.71. Based on a
discounted free cash flow valuation approach the presenting team group valued Ebay at $69.00
per share. However, Ebay’s high price/earnings ratio and the uncertainty surrounding Internet
companies and their future led SMIF participants to vote against inclusion of the stock.
Sector: Services P/E Ratio: 170.4

Industry: Business Service Beta: 2.25
Presented @ $58.71
26
The Benchmarks
The Standard and Poor’s 500 Index

The SMIF portfolio managers chose to use the Standard and Poor’s 500 (S&P 500) Index as the
benchmark for the equity portion of the portfolio. The selection of the S&P 500 Index was
driven by its paralleling the typical market capitalization of most equities in the SMIF portfolio,
and by the general familiarity of the Index within the investing communities. In particular, the
500 stocks that comprise the Index represent about 80% of the total market valuation.
Consequently, the Index measures a broad spectrum of the overall market, the intent of an
overall benchmark for SMIF.
The Index is comprised of 500 stocks chosen for market size, liquidity and industry
classification. The S&P 500 is market-value based, with the weighting of a stock in the Index
being influenced, in part, by the company’s market capitalization. The Index is constructed to
cover strong, strategic sectors within the overall market.
Lehman Intermediate Credit Index A

For the fixed income portion of the portfolio, the SMIF portfolio managers chose the Lehman
Intermediate Credit Index A as the benchmark. The Lehman Intermediate Credit Index A is
comprised of a diverse collection of corporate debt instruments. As of October 31, 2001, the
Index portfolio held 1152 issues where the average S&P credit rating for the debt pool ranges
from an “A-“ to “A”. The corresponding average Moody’s Rating is A2/A3. The Lehman Index
portfolio duration is 4.1 years with an average maturity of the debt pool of about 5.2 years. The
Index average yield to maturity is about 5.271%, as measured on October 31, 2001.
This Index was chosen principally for its average duration and credit quality characteristics.
After the SMIF teams completed the baseline economic and interest-rate-environment analyses, a
baseline bond portfolio duration of about 4.5 years with maturities ranging from 5 to 7.5 years
was chosen. The Lehman Intermediate Credit Index A met these criteria and was chosen as the
best relevant metric.
Three-month Treasury Bill

The SMIF portfolio managers selected the three-month T-bill as the overall benchmark for short-
term interest rates and money-market returns. The cash portion of the portfolio was invested in
the Salomon Smith Barney money-market fund, where money-market funds are required to have
a portfolio average maturity near three months.
27
Portfolio Performance
SMIF Portfolio Performance
Gain or Loss Holding

On Period S&P 500
Investment Return Return
Fixed Income -$507.47

Equities -$1,617.20
Money Market $749.77
Total Portfolio -$1,374.90 -2.75% -7.28%
1. Return of the S&P 500 from August 28, 2001 to April 30, 2002, The SMIF investment period
During academic year 2001/2002, the participants of SMIF experienced one of the most volatile
markets in recent decades. Factors such as the September 11th terrorist attacks, several large U.S.
bankruptcies, and the erosion of conference in the independent audit within the accounting
practice contributed to the market’s volatility. To minimize risk during these uncertain times,
SMIF spent a great deal of time completing an extensive analysis of the economic environment
awaiting the portfolio.
SMIF chose the Standard and Poors 500 (S&P 500) as its benchmark due to the diversification
and historical performance of the index. The investment period for SMIF was from August 28,
2001through April 30, 2002. During this period, SMIF outperformed the S&P 500 benchmark by
4.53 percentage points. The holding period return for the SMIF portfolio was –2.75% versus a
S&P 500 return of –7.28%.
28
Weighted Portfolio Returns
SMIF Composite Portfolio
Index Weighted-Index Portfolio Weighted-Portfolio

Weights Return Return Return Return
Equities 40% -7.28% 1

-2.91% -8.04% -3.22%
Fixed Income 20% -1.10% 2
-0.22% -4.75% -0.95%
Money Market 40% 2.53% 3
1.01% 3.90% 4
1.56%
Total 100% -2.12% -2.60%
1. S&P 500 return from August 28, 2001 to April 30, 2002
2. Lehman Index return from August 28, 2001 to April 30, 2002
3. Average 3-Month T-Bill Return from August 28, 2001 to April 30, 2002
4. This represents the total money market interest earned, $749.77, divided by the difference
between the $50,00 initial portfolio value and the sum of the $20,109.74 invested in
equities and the $10,686.33 invested in fixed income securities.
The table above demonstrates the weighted performance of the SMIF composite portfolio. To
establish the portfolio’s relative performance, this approach compares the various asset classes to
their respective benchmarks. Equities narrowly underperformed the S&P 500 Index, by 76 basis
points. The fixed income component also underperformed its benchmark, the Lehman
Intermediate Credit Index A, by 365 basis points. The default money market instrument, on the
other hand, outperformed three-month T-Bills by 137 basis points. It must be noted, however,
that the figure given for the money market return is a residual calculated by dividing the total
money market interest earned by the difference between the initial portfolio value of $50,000 and
the sum of the maximum amounts that were invested in equities and fixed income securities
throughout the year. Thus, this residual represents the minimum amount, less accumulated
interest, that was invested in money market funds throughout the year. In general, though, the
amounts invested in money market funds over the course of the year were greater than
$19,203.93, so that the actual yields earned were correspondingly less than 3.90%.
SMIF managers anticipated a challenging investment environment and the possible adverse
effects on overall performance. First, the overall U.S. economy was entering a significant
downturn as the robust economy of the 1990’s was coming to an end. Second, international
unrest due to the terrorist attacks and mounting Middle East tensions heightened market
volatility. A third factor challenging SMIF was the softness of the financial markets near the
liquidation date of April 30, 2002. During April 2002, the S&P 500 lost 6.10% of its value, the
eighth sharpest monthly decline in history. Questionable accounting practices and large
corporate bankruptcies magnified market weakness.
29
Equity Securities
Equity Transactions
Order Gain/Loss
Symbol Type Date Shares Price Commission Total $ %
AIG Buy 2/20/02 68 72.92 60.25 -$5,018.81

AIG Sell 4/30/02 68 69.60 60.40 $4,672.40 -$346.41 -6.90%
HOTT Buy 3/6/02 229 21.55 75.68 -$5,010.63

HOTT Sell 4/30/02 229 22.66 77.88 $5,111.26 $100.63 2.01%
CTX Buy 3/13/02 80 61.46 60.25 -$4,977.05

CTX Sell 3/20/02 80 54.60 59.73 $4,308.27 -$668.78 -13.44%
FRX Buy 3/13/02 60 84.05 60.25 -$5,103.25

FRX Sell 4/22/02 60 74.35 60.39 $4,400.61 -$702.64 -13.77%
Equities Total -$20,109.74

$18,492.54 -$1,617.20 -8.04%
Benchmark Timeframe Date Index Value Return
S&P 500 Beginning 8/28/01 1161.5 -7.28%

Ending 4/30/02 1076.9
The first security to receive the necessary two-thirds vote was American International Group.
On February 20, 2002, SMIF purchased 68 shares and held those shares until liquidation on
April 30, 2002. The second security purchased was Hot Topic, a trendy clothes retailer. SMIF
purchased 229 shares on March 6, 2002, and was also held until liquidation. Forest Laboratories,
a developer of branded and generic drugs, was the third issue and SMIF purchased 80 shares. In
accordance with SMIF guidelines, Forest Laboratories was sold on April 22, 2002, after the issue
declined below the ten percent stop-loss. The fourth issue to receive the necessary votes was
Centex Corporation, one of the nation’s largest homebuilders. SMIF purchased 80 shares on the
morning of March 13, 2002. CTX also declined below the ten percent stop-loss and SMIF sold
the issue on March 22, 2002.
30
Fixed Income Securities
Fixed Income Transactions and Performance

Order Gain/Loss
Symbol Type Date Shares Price Accrued Interest Com. Total $ %
FPL Buy 1/28/02 50 107.523 58.39 60.00 -$5,494.54

FPL Sell 4/30/02 50 102.000 155.69 60.00 $5,194.69 -$299.85 -5.46%
HI Buy 12/17/01 50 102.158 28.89 60.00 -$5,191.79

HI Sell 4/30/02 50 96.75 151.67 60.00 $4,984.17 -$207.62 -4.00%
Fixed Income Total $ -10,686.33)

$ 10,178.86 -$507.47 -4.75%
Benchmark Timeframe Date Index Value Return
Lehman Beginning 8/28/01 104.218 -1.10%

Ending 4/30/02 103.070
SMIF purchased two bonds during the investment period. The first bond, Household Finance,
was purchased on December 17, 2001, at 102.158. The second issue, Florida Power and Light,
was added on January 28, 2002, at 107.523. Both bonds were eventually sold below their
purchase prices.
Due to factors beyond the control of SMIF, the fixed income portion of the securities did not
perform as anticipated. The limited size of the portfolio’s bond investments affected the
availability and liquidity of most fixed income instruments. Due to availability constraints,
SMIF invested in securities available from a limited inventory of 10 to 15 companies.
Additionally, costs such as commissions and bid/ask spreads adversely affected overall bond
returns.
31
Learning Experience
The following learning experiences represent views from a member of each SMIF team. The
views are from one member of the team and have been written from that member’s perspective.
Each student has tried to convey a different theme on what SMIF has offered to him or her.
Real Dollar Portfolio

(Member from Team 1)
The real dollar aspect of the program created a valuable learning experience. Because of the real
money, I, along with the other 15 participants who were chosen from a pool of applicants,
carried a great sense of responsibility. In no other class I have ever taken did I care so much
about what the outcome would be. At the end of the SMIF program I will walk away with a
tangible document, The Annual Report, that will exemplify all my efforts.
SMIF allowed me to use the tools I had learned in previous finance courses in a real world
setting with real money. For example, the technical analysis tools and evaluation models I
learned in previous classes came to life in the SMIF program. I quickly learned that in the
classroom it seemed that the tools always worked, but when applied to real companies that I was
analyzing and real dollars that were being invested, the models and tools did not always apply.
The challenge of finding the best model and most applicable tool was a valuable learning
experience. The SMIF program has better prepared me for the real world.
With all this said, I must emphasize the knowledge and wisdom I have gained by being involved
in the SMIF program result directly from the real dollar aspect of the program. If the program
were based on fictitious investments, I would have never walked away with the same knowledge
I now carry. The real value of the program lies in the investment of real dollars in a student-
managed portfolio.
Networking
The SMIF program encourages and expects the student’s participation in professional
organizations such as the Orange County Society of Investment Managers and the Los Angeles
Society of Financial Analysts. Having been provided an environment conducive to networking, I
have gained exposure to a multitude of career opportunities in the investments industry. The
Student Managed Investment Fund program has not only enhanced my marketability, but has
also allowed me to offer employers a distinctive type of preparation.
The honors level course offered by the Finance, Real Estate and Law department has truly
allowed me to draw relevant principles out of the classroom and apply them to the debt and
equity markets. Having the opportunity to not only gain hands-on experience managing a
$50,000 portfolio, but also to network with professionals working in the industry has enabled me
to enhance my educational experience at Long Beach State.
32
Applying classroom learned techniques and theory to real world
One of the primary learning experiences I took away from the SMIF program was applying the
techniques and theories learned in my finance courses to the real world. Throughout our
curriculum, we studied fundamental analysis, technical analysis, qualitative analysis, bond
valuation and various other technique, and in the SMIF program we apply those techniques to the
real world as we concentrate on constructing and managing the real dollar portfolio. For
example, I remember studying fundamental analysis in the classroom, more specifically,
studying Free Cash Flow, Free Cash Flow to Equity, the Dividend Discount Model, and the
Earnings Multiplier Model. Every time the class worked these problems, the models seemed to
fit perfectly in every case used. All crucial variables were given, such as growth rates and
discount rates, and no complications surfaced. However, in the SMIF program, that was not the
case. In applying these models to actual securities, I quickly learned the limitations these models
possess that were only alluded to in the classroom. The SMIF experience familiarized us with
the intricate workings of the models.
Presentation
Another valuable experience I will take away from the SMIF program is learning how to give
effective PowerPoint presentations. Presentation skills are just as important as acquiring
technical knowledge and capabilities. The best technical knowledge is only as good as the
analyst’s ability to present it understandably to the audience. The majority of our class time was
spent presenting viable security issues to the class, and as a result, I feel that I have taken away
valuable presentation skills that will stay with me and help me throughout my professional
career.
33
Presentation Guidelines
Equity
In preparation for stock presentations, the student portfolio managers spent a great deal of time
determining the components that should be considered in the equity presentations. These
guidelines helped to create a representative view of the security characteristics, similar to
recommendations made by investment professionals. The following list represents the required
components SMIF used to evaluate the equities presented, but many teams chose to include
additional information in their presentations as well.
Company Overview Financials

Industry Description Liquidity
Key Competitors Asset Management
Company Profile Debt Management
SWOT Analysis Profitability
Industry Growth Projections Market Value
Competitive Strategy Cash Flow Analysis
Differentiation from Competitors
Ratio Analysis Supplementary Information

Earnings Per Share Growth and Trends Five Technical Analysis Tools
Standard Deviation of Returns Past Stock Performance (3 Years)
Two EPS Growth Projections Target Price
Two Valuation Techniques (Minimum) Analyst Recommendations
Comparison of Valuation to Current Price Team Recommendation Strategy
Effect of Recommendation on the
Portfolio
Bond
After evaluating the economy, sectors, and industries, the SMIF teams analyzed fixed income
securities. Apart from considering the availability of an issue, SMIF focused on the following
elements in evaluating bonds:
• Duration • Value Added Opportunities

• Maturity • Analyst Ratings
• Bond Rating • Recent News
• Yield
34
Technical Analysis Tools
SMIF used five technical tools to help assess entry points for selected securities. The tools
provide indications useful in determining security trends and momentum. Trending tools are
lagging indicators that show what the security is currently doing or has done in the past.
Momentum tools are leading indicators and are designed to anticipate future price movement.
The class required presenting teams to utilize all five tools as part of their equity presentations.
Given the timeline for our investments, positive entry points played an important role in
analyzing and recommending equity issues. The following briefly defines and illustrates how the
technical tools are used:
Bollinger Bands
Bollinger Bands were designed to compare volatility and relative price levels over time. The
indicator can also be used to identify times when prices have reached extreme levels. Bollinger
bands are plotted with standard deviation lines above and below a simple moving average line,
and are transposed on a security’s price graph. During periods of high volatility in a security’s
price movement, the bands widen, and during periods of low volatility in a security’s price
movement, the bands narrow. Large price changes usually occur after the bands tighten. There
are several ways to interpret this indicator. A trend is expected to continue if a security’s price
moves outside of the bands. When a price movement penetrates the top or bottom line once and
is followed by a subsequent crossing and is accompanied by tightening bands, then a big reversal
in price movement could follow. When highs and lows are made outside the bands, and are
followed by highs and lows inside the band, a reversal in the trend is indicated.
The graph on p.37, Syncor shows the bands tightening in January and into the beginning of
February. This tends to indicate a big price movement is possible, especially when accompanied
by price penetrations of the upper or lower bands. Unfortunately, the movement was delayed
and did not occur until after a five-point decline. It is wise to use caution and support this
indicator with supplemental tools before making a buy or sell.
Moving Average Convergence Divergence (MACD)
MACD is a momentum indicator. The indicator is usually calculated by taking the difference
between a 26-day exponential moving average and a 12-day moving average, and plotting it on
top of a nine day moving average, called the signal or trigger line (depending on the security the
moving average periods can vary to better suit the price movement). In crossovers, a sell signal
is indicated by the MACD falling below the signal line, and a buy is indicated by the MACD
rising above the signal line. Another common use of crossovers is to use the zero line as the
signal line. Overbought and oversold conditions are indicated by the signal line moving away
from the other line. When an overbought or oversold condition is indicated, then the security’s
price is expected to return to more normal levels. Divergences indicate that the trend may end
soon. A bearish divergence occurs when the MACD line makes a new low while the price fails
to reach a new low. A bullish divergence is indicated by the MACD making a new high while,
comparatively, the price has not reached a new high.
35
In the chart on p.37, the MACD is signaling a strong buy in mid-February. The MACD line is
shown crossing over the 9-day moving average line and proceeding to cross over the 0 line,
illustrating a strong buy indication.
Williams %R
Williams %R is a momentum indicator that indicates overbought and oversold levels.

Overbought conditions are indicated by the indicator line being in the range of 80 to 100%.
Oversold conditions are indicated by the indicator line being in the range of 0 to 20%.
It is best to wait for the security’s price to reverse and cross the 50% mark before making a
move.
In the chart, Williams %R is too sensitive for the security and is exhibiting too many signals. A
longer time period could be used to smooth out the indicator and make it more helpful in
determining entry and exit points. This tool should be used alongside other tools to confirm buy
and sell signals.
Stochastic Oscillator
The stochastic oscillator is a momentum indicator that shows the location of the most recent
close relative to the high/low range over set number of periods. It is comprised of two lines
called %K and %D. The %k is found by using the following equation: 100 * (Recent Close-
Lowest Low (n)) / (Highest High (n) – Lowest Low (n)). %D is a 3-period moving average of
%K. A buy is indicated by the %K or %D line falling below a predetermined level and then
rising back above that level. A sell is indicated by the %K or %D line rising above a
predetermined level and then falling back below that level. Another way to use the stochastic
oscillator is to buy when the %K line rises above the %D line, and sell when the %K line falls
below the %D line.
Money Flow
The Money Flow index is a momentum indicator that measures the volume of money moving
into and out of a security. A reversal in the trend is indicated by the price moving higher while
the index moves lower, or the price moving lower while the index moves higher. Also, a
security’s price is predicted to reach a high point when the indicator is above 80, and a security’s
price is indicated to reach a low point when the indicator is below 20. It is best to wait for the
security’s price to reverse before making a move.
The Money Flow index shown on p.37 has remained fairly stable over the selected time frame.
Although an overbought condition might be developing in May as the index reaches the 100 line,
historic index movement indicates this level as being quite high for the security, which may
indicate a sell point.
36
Technical Analysis Sample Chart
37
Acknowledgements
The 2001 – 2002 SMIF participants would like to extend their appreciation to the following
individuals who, in varying ways, assisted in enhancing the SMIF learning experience:
Guest Speakers
Mr. Doug Lopez, CFA, Vice President of Portfolio Manager, Bradford & Marzec, Inc.-
For generously sharing his knowledge of the world of fixed-income investment to the class.
Ms. Sonya Walker, Director of Client Services, Bradford & Marzec, Inc.-
For generously sharing her personal experience in maintaining relationship with clients and
managing their needs.
Mr. Chris Sheldon, CFA, Mellon Private Asset Management-

For providing valuable insight on the subject of portfolio management.
Mr. Brian Rogers, Portfolio Associate, Pacific Investment Management Company –

For speaking to the SMIF group on the subject of fixed income investment management.
Mr. Daniel Nikaiyn, Research Associate, Bradford & Marzec, Inc. –

For providing the students of SMIF with his valuable knowledge of fixed income analysis
Ms. Frances Regalado, Assistant Vice President, Structured Products, ING Capital Advisors. -
For giving of her valuable time to assist SMIF with a better, understanding of the Financial
Markets
Mr. Bert Wilson, Analyst, Wilshire Associates. -

For providing the students of SMIF with an understanding of what they can expect during their
job search.
Thanks to Foundation Investment Committee
Mr. Bill Griffith, Vice President, Finance, Chair of the Investment Committee
Dr. Robert Bersi, Vice President, University Relations & Development
Joseph Latter, Associate Vice President, Admin. & Finance
Robert Behm, Executive Director, Foundation
Janna Tenenbaum, Associate Executive Director & Finance Officer
Rocky Suares, A.G. Edwards
Bridgette Pruitt, Administrative Assistant to the Executive Director, Foundation
38
SMIF would like to give the following individuals special thanks; with out your support SMIF
would not be possible.
Dr. Jeanette Gilsdorf, Professor of Information System-

For graciously lending many hours of her time for the proofreading of this report. Your work is
invaluable to helping SMIF produce a professional annual report.
Mr. Steven Berkley and Ms. Kathy Park, Index Specialists, Lehman Brothers-
For providing valuable information used for managing SMIF’s bonds portfolio. The data you
provided helped to guide SMIF in its fixed income decisions.
Mr. Wes Seegers, Senior Vice President, Salomon Smith Barney-

For acting as our broker and financial advisor. Mr. Seegers generously executed our portfolio
transactions at discounted prices.
Ms. Jodi True, Client Manager, Los Angeles Society of Financial Analysts (LASFA). -
For helping SMIF participants attend and register for LASFA events.
Ms. Jackie Curran, Administrative Director, Orange County Society for Investment Managers. -
For helping SMIF participants attend and register for OCSIM events.
This year’s SMIF participants would also like to thank CSULB, the College of Business
Administration, and the Department of Finance, Real Estate and Law.
Finally, this year’s SMIF participants would like to extend a special thanks to Dr. L.R. Runyon
and Dr. Peter Ammermann for their dedication to the SMIF program and commitment to
pursuing higher standards of education.
39
Appendix A
Student Managed Investment Fund Guidelines
Introduction
The College of Business Administration at California State University, Long Beach (CSULB)
has made the commitment to develop and offer a student-managed investment fund course for
students majoring in finance with an option in investments. This course is different from other
academic programs at CSULB because it uses a Real-Dollar portfolio rather than a virtual
portfolio. The course gives the students “Real World” applications to academic programs,
fostering interaction between the University and the security industry, increasing the prestige of
the University and the College of Business Administration, attracting better and more qualified
students and professors, and producing better prepared and more skilled graduating students.
Providing a more meaningful and valuable learning experience for students with the College of
Business Administration is the primary goal of the Student Managed Investment Fund.
The student managed investment fund portfolio is managed by a combination of senior-level

undergraduate students concentrating in investments, and second year MBA students
specializing in finance. Students enrolled in this “honors level” course have taken a number of
required prerequisite courses, and are subject to approval by the Finance Department Chairman
and the course faculty advisors.
Three levels of security checks and balances will monitor the integrity of the fund. All trades
will be approved by majority of students in class, and subjects to veto by any of the three fund
advisors. Quarterly financial statements audited by a major accounting firm and an annual report
will be made available to major fund benefactors.
This overview will outline the overall mechanics of the course itself, define the general
objectives of the investment fund, explain the types of securities the fund will invest in and how
trades will be transacted, specify the diversification strategy guidelines to be observed, describe
the various safeguards and security measures that will be “built into” the program, and reveal
some of the special features of the program that will make it a unique and invaluable experience
for all participants involved.
Investment Fund Objectives

Preservation of Capital
In the beginning phase of the program, the primary objectives is preservation of the initial fund
endowment so that these assets can be utilized by future classes.
Rate of Return
The return should be equal to or better than the Standard and Poor’s 500 Index.
40
Moderate and Steady Growth
As the assets of the investment fund grow, earnings may be used to finance scholarships and
special projects, and perhaps course-related field trips.
Suggested Investment Pool

Students will be allowed to invest in the following types of securities:
- Common Stocks of companies listed on the three major exchanges:

NASDAQ/OTC, NYSE, and AMEX
- Value Line Financial Strength rate of “B” of above will be required (or equities of
non-rated companies with meaningful analytical support).
- Companies with market capitalization of at least $100 million.
- Government Bonds: Investment quality corporate bonds (Moody’s or S&P rating
of ‘BBB’ or above).
Students will not be allowed to invest in the following types of securities and activities:
- Mutual Funds
- Short Sales
- Futures or Derivatives
- Foreign Equities or Debt Investments
- Utilization of Leverage
Suggested Portfolio Diversification Guidelines

- 50% - 75% to be invested in equities
- 25% - 50% to be invested in debt securities
- Portfolio Beta not to exceed 1.5
- Equal mix of income (dividends) and growth (capital gains) stocks
- The following 5 / 10 / 15 rules shall apply
Investment in any security shall constitute at least 5% of the value of the
portfolio
No more than 10% of the portfolio can be invested in any one company
No more than 15% of the portfolio can be invested in any one industry
Suggested Transactions Guidelines

- Round lot purchases, when possible within the above guidelines
- Purchase decisions supported by majority of students
- Subject to veto by any of the three fund advisors
- Irrevocable 10% stop-loss provision communicated to the broker at the time of
purchase
- Any bond falling below investment grade is to be sold
41
Frequency of Trading
Trades are recommended and voted upon by students, and approved by the fund advisors.
Classes meet once a week and trading decisions are made at that time. In emergency situations
any of the fund advisors may make a sell decision without student input.
Summer Break Fund Activity

The investment fund is liquidated at the end of each spring semester or directives may be put into
place to assure orderly and timely liquidation. Fund assets are used to purchase short-term
Treasury bills or money market instruments. This process allows each new class the opportunity
to start from “scratch” without the need to justify any prior holdings.
Classroom Mechanics
- Graduate and undergraduate level students will be organized into groups with
three or four students
- Occasional Guest Speakers/Lecturers

Portfolio Managers
Securities Analysts
Leaders – Economists
Corporate Vice Presidents of Finance
- Three Investment Fund Advisors

Instructor / Faculty Advisor
Corporate Advisor
Securities Industry Advisor
- Field Trips
CFA Meeting
Orange County Society of Investment Managers Monthly Events
Los Angeles Society of Financial Analysts Weekly Events
Three Levels of Security

- Trades subject to veto by any of the fund advisors
- Monthly statements and quarterly audit from the brokerage firm
- Annual report and record of transactions sent to the major fund benefactors
Commissions
One of the contributors to the fund representing a major brokerage house conducts the fund’s
trades at or below cost.
42
Appendix B
California State University, Long Beach
The University
California State University, Long Beach (CSULB) is a large urban comprehensive university in
the California State University System. The mission is to provide a high-quality education
leading toward a broad range of baccalaureate and graduate degrees spanning the liberal arts and
sciences and many applied and professional fields. The emphasis is on instruction at the upper-
division levels in accordance with the California Master Plan for Higher Education.
The University’s educational goal is to promote intellectual and personal development and to
prepare students for lifelong learning as well as develop abilities to succeed in a variety of
professional endeavors.
College of Business Administration

The College of Business Administration (CBA) is a leading, dynamic college serving Orange
County and the greater Los Angeles community. CBA is the tenth largest business college in the
United States. The mission of the college is to prepare its students for successful careers in
business. A high priority had been given to bring uniqueness and responsiveness to the CBA
program and to provide students with high quality, contemporary curricula. The college is
accredited by the American Assembly of Collegiate Schools of Business at both the bachelors
and masters degree levels. CBA is composed of five departments: Accountancy; Finance, Real
Estate, and Law; Information Systems; Management/Human Resources Management; and
Marketing.
Department of Finance, Real Estate, and Law

The objective of the Finance, Real Estate, and Law curricula is to prepare students with an
understanding of the financial decision-making process and its impact within the overall
framework of the business enterprise. The curriculum draws on fundamental knowledge of
statistics, computer skills, logic, economics, and law to develop advanced financial concepts. It
explores the historical and current roles of various financial institutions and regulatory
authorities, details of basic principals and techniques for valuating financial instruments on the
basis of fundamentals and/or historical pricing trends. The Finance Major has concentrations in
financial management and investments at the undergraduate level. MBA students may also
choose a concentration in finance.
43
Appendix C
Student Managed Investment Fund
The Program
The Student Managed Investment Fund (SMIF) at California State University, Long Beach
(CSULB) was initiated in August of 1995 to provide students with the opportunity to gain “real-
world” experience in managing an investment portfolio using actual monetary assets rather than
“paper” transactions that are commonly utilized in investment courses. The aim of the program
is to generate a wide variety of benefits to the students including:
• Introducing “real-world” applications to academic programs
• Providing “hands-on” training in securities analysis and portfolio management utilizing

computerized methodology
• Increasing exposure to career opportunities within the investment industry
• Developing skills fundamental to the investment industry
• Providing a meaningful and valuable learning experience
SMIF is an honors program open to students by invitation of the Finance Department. The class
combines undergraduate and graduate courses in finance for students concentrating on
investments. Student selection is based upon their academic records, completion of required
prerequisite courses, and personal interest in the field of investments.
Guest Speakers
• Douglas F. Lopez, CFA, Bradford & Marzec, Inc. Bond Investment Strategy
• Chris Sheldon, CFA Mellon Private Asset Management
• Brian Rogers, PIMCO
Funding
The Department of Finance, Real Estate, and Law Account provides funding for the Student
Managed Investment Fund. The Foundation Account receives contributions from the private
sector for the benefit of the Department’s academic programs. Department faculty has
graciously allowed SMIF to utilize $50,000 of funds that would otherwise be available for other
academic programs. This commitment to quality education by the members of the department is
44
indicative to the faculty’s desire to ensure that students with an interest in investments will have
the opportunity to obtain “real-world” experience as part of their academic programs.
Guidelines
SMIF is organized and managed in accordance with the guidelines established by the College of
Business Administration, Department of Finance, Real Estate, and Law, and the Fund Advisors.
Fund Advisors
SMIF is grateful to the following Fund Advisors for their guidance, knowledge, and support:
Dr. L. Richard Runyon, Professor and Department Chair, Finance

Wes Seegers, Professor and Senior Vice President, Salomon Smith Barney
Norman Coulson, Adjunct Professor
45
Appendix D
Sources
SMIF utilized several websites to obtain the information needed for equity and bond selections.
Information gathered from these sites included financial data, technical graphs and the most
current news and events pertaining to the debt and equity markets. Current news provided
information the SMIF members used to structure the portfolio, and allowed them to update
potential future scenarios. The classroom Internet connection proved to be a vital asset to the
SMIF team.
Web Sites
www.valueline.com
Value line features investment-related articles, business forecasts, and a product directory that
lists the investment survey.
www.bara.com
A leading provider of quantitative analysis and analytical tools
www.edgar_online.com
SEC filings are accessible through EDGAR, including filings for executive compensation, 10-K
and 10-Q forms for over 8,500 firms.
www.hoovers.com
Hoover’s Online is a commercial source of company-specific information, including financial
statements and stock performance.
www.bog.frb.fed.us
Home page to the Board of Governors of the Federal Reserve System, this website features data
and information on a number of Fed-related activities, including research, money supply trends,
Board actions, consumer information, and reports to Congress.
www.bankamerica.com
The Bank of America website features U.S. and global economic reviews, outlooks, and
investment strategies.
www.spglobal.com/index.html
A Standard and Poor’s site for index services; contains current headlines, weekly features, and
information on the S&P stock indexes.
46
www.bonds-online.com
This Web site covers the gamut of bonds. It offers information and price quotes on a wide variety
of instruments, including treasuries, savings bonds, corporate bonds, municipals, inflation
indexed bonds, and zero coupon bonds.
www.bondmarkets.com
The U.S. Public Securities Association home page contains information on a variety of bond
market topics, newsletters, and reports.
www.ms.com
Morgan Stanley Dean Witter’s website has a link to their Global Strategy Bulletin, which
contains an analysis of the U.S. economy and the economies of several other countries.
www.bigcharts.com
This site offers free intraday and historical charts.
www.quote.yahoo.com
Yahoo Finance gives quotes, company snapshots, financial data, and daily news coverage.
www.cbs.MarketWatch.com
MarketWatch provides a full range of financial and political news in both the domestic and
global markets.
47

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Student Managed Investment Fund 2001 – 2002

The Mission of the Student Managed Investment Fund

Student Managed Investment Fund

From Left to Right

1. Perform economic outlook

• Gross Domestic Product

Gross Domestic Product (GDP)

Consumer Confidence Index

Medical Equipment & Supplies

Biotech & Drugs

Natural Gas Utility

This industry is a diversified amalgamation of lending and consumer credit companies. As of

Savings and Loans

In addition to economic projections, SMIF utilized professional recommendations regarding

Actual Asset Allocation

• Duration 5.35 • Yield to Maturity 6.23%

Florida Power and Light

• Duration 4.819 • Yield to Maturity 6.247%

• Duration 4.421 • Yield to Maturity 6.160%

• Duration 6.923 • Yield to Maturity 6.380%

• Duration 4.428 • Yield to Maturity 5.167%

• Duration 3.925 • Yield to Maturity 6.667%

• Duration 5.198 • Yield to Maturity 5.92%

Lockheed Martin Corporation

• Duration 4.22 • Yield to Maturity 5.003%

• Duration 4.47 • Yield To Maturity 5.41%

Philip Morris Company

• Duration 3.73 • Yield to Maturity 4.68%

Selected Company Information

Selected Company Information

Sector: Services P/E Ratio: 29.95

Selected Company Information

Sector: Healthcare P/E Ratio: 44.05

Selected Company Information

Sector: Capital Goods P/E Ratio: 9.95

Sunrise Assisted Living, Inc. – NYSE: SRZ

Selected Company Information

Sector: Healthcare P/E Ratio: 13.2

Pharmaceutical Product Development, Inc. is a contract research organization that provides

Selected Company Information

Sector: Healthcare P/E Ratio: 67.28

Selected Company Information

Sector: Healthcare P/E Ratio: 22.81

Selected Company Information

Sector: Services P/E Ratio: 42

Selected Company Information

Sector: Healthcare P/E Ratio: 20.99

Selected Company Information

Sector: Consumer Cyclical P/E Ratio: 21.3

Selected Company Information

Sector: Services P/E Ratio: 29

Selected Company Information

Sector: Services P/E Ratio: 170.4

The Standard and Poor’s 500 Index

Lehman Intermediate Credit Index A

Three-month Treasury Bill

SMIF Portfolio Performance

Gain or Loss Holding

Fixed Income -$507.47

Total Portfolio -$1,374.90 -2.75% -7.28%

SMIF Composite Portfolio

Index Weighted-Index Portfolio Weighted-Portfolio

Equities 40% -7.28% 1

Total 100% -2.12% -2.60%